Nearly three years after its decision in Johnson v. NPAS Solutions LLC, the Eleventh Circuit Court of Appeals remains the only circuit in the nation to categorically bar class representatives from receiving incentive awards. The U.S. Supreme Court recently denied a petition for certiorari to review the Eleventh Circuit’s first-in-the-nation decision in Johnson. Three other circuits, the First, Second, and Ninth Circuits, have explicitly rejected the Eleventh Circuit’s approach.
The Eleventh Circuit’s decision grew out of a class action filed in West Palm Beach, Florida, under the Telephone Consumer Protection Act against a medical debt collector. The plaintiff alleged the debt collector had used an automatic telephone dialing system to call his cellphone without consent. The parties quickly agreed to a class settlement, and Johnson moved to certify the class. U.S. District Judge Robin Rosenberg preliminarily approved the settlement, certified the class for settlement purposes, and appointed Johnson as the class representative. The district court awarded him $6,000 for his role in prosecuting the case for the class.
But one class member objected, arguing, among other things, that Johnson’s $6,000 incentive award contravened Supreme Court precedent in Trustees v. Greenough and Central Railroad & Banking Co. v. Pettus. Both of those 19th-century decisions preceded the creation in 1966 of the modern class action rule in Federal Rule of Civil Procedure 23. The district court denied the objection.
The objecting class member appealed, maintaining her argument that Johnson’s incentive award violated Greenough and Pettus. Writing a three-judge panel opinion joined by a visiting judge from the Tenth Circuit, U.S. Circuit Judge Kevin Newsom wrote that both Greenough and Pettus prohibited compensating a class representative for his time bringing a class claim.
Neither Greenough nor Pettus concerned a class action, as class actions did not exist in their modern form in 1885. In Greenough, a bondholder sued the Florida Railroad Company for himself and other bondholders for wasting assets that secured the railroad’s bonds. The district court awarded the plaintiff attorneys’ fees and litigation expenses for prosecuting the case and rescuing the bond fund. It also awarded him money for his personal services and private expenses. The Supreme Court approved the award for money spent on litigation but not for the plaintiff’s personal expenses. Three years later, the Supreme Court in Pettus, a case about paying attorneys’ fees from a common fund, again distinguished between payments for attorneys’ fees and personal expenses.
About 135 years later, the Eleventh Circuit became the first circuit court to apply the language to class actions. In Johnson, Judge Newsom found the facts in Greenough and Pettus analogous to today’s class action. “It seems to us that that the modern-day incentive award for a class representative is roughly analogous to a salary — in Greenough’s terms, payment for ‘personal services.’” “Incentive awards are intended not only to compensate class representatives for their time (i.e., as a salary), but also to promote litigation by providing a prize to be won (i.e., as a bounty).” As such, he wrote that the Supreme Court had prohibited such payments.
Judge Newsome acknowledged that “incentive awards do seem to be fairly typical in class action cases.” But no matter. “[S]o far as we can tell, that state of affairs is a product of inertia and inattention, not adherence to law. The uncomfortable fact is that ‘[t]he judiciary has created these awards out of whole cloth,’ and ‘few courts have paused to consider the legal authority for incentive awards.’”
Former Judge Beverly Martin, who retired from the court in 2021, dissented from that holding. “[T]he majority takes a step that no other court has taken,” she wrote, and “takes our court out of the mainstream.”
“By prohibiting named plaintiffs from receiving incentive awards, the majority opinion will have the practical effect of requiring named plaintiffs to incur costs well beyond any benefits they receive from their role in leading the class. As a result, I expect potential plaintiffs will be less willing to take on the role of class representative in the future,” she wrote.
Judge Martin also argued that courts, including the Supreme Court and the Eleventh Circuit itself, had approved incentive awards before. Rather than apply a categorical rule, courts evaluated whether the awards created a conflict between the class representative and the class members. Only a year earlier, she wrote, the Supreme Court in Frank v. Gaos recognized a class settlement that included an incentive award and did not question its viability. Even Justice Thomas, who dissented on other grounds about including in the class settlement a cy pres payment to nonparty charities, did not cast doubt on incentive awards.
Two years after the panel opinion in Johnson, the full Eleventh Circuit denied a petition for rehearing en banc. The court’s four judges appointed by Democratic presidents, Judges Jill Pryor, Charles Wilson, Adalberto Jordan, and Robin Rosenbaum, dissented. Writing for the dissent, Judge Pryor argued that Greenough concerned only the remedies authorized by the common law of trusts and did not require changing the 140 years of subsequent law governing class actions. Rule 23 “ushered in an entirely new regime for the federal courts’ treatment of collective actions,” she wrote.
Since Johnson, no other circuits have joined the Eleventh Circuit’s holding, and three circuits have rejected it.
The First Circuit in Murray v. Grocery Delivery E-Services USA Inc. opted “to follow the collective wisdom of courts over the past several decades that have permitted these sorts of incentive payments.” It did not agree that Greenough was analogous to class actions. In Greenough, the court “was concerned that such awards would induce creditors to interfere with the management of funds that had already been entrusted to trustees charged with fiduciary duties to act in the best interests of the creditors.” By contrast, “Rule 23 is designed to encourage claimants with small claims to vindicate their rights and hold unlawful behavior to account.”
The same year, the Ninth Circuit in In re Apple Inc. Device Performance Litigation also took issue with the Eleventh Circuit’s logic. It explained that Greenough “prohibited recovery for the plaintiff’s ‘personal services and private expenses’ because the private plaintiff was a creditor who needed no inducement to bring suit.” Moreover, the 10-year allowance for “personal services” in Greenough would be equivalent today to $76,000 a year, and the “personal expenditures” would be worth about $458,000 today. By contrast, most class representatives received incentive awards ranging from $1,500 to $7,500.
The Ninth Circuit also noted that the Supreme Court in 2018 had “acknowledged that ‘[a] class representative might receive a share of class recovery above and beyond her individual claim’ through an incentive award.”
Three months ago, in March 2023, the Second Circuit in Fikes Wholesale Inc. v. HSBC Bank USA, N.A. widened the split. It again rejected a call to end incentive awards, acknowledging being bound by its own decision in Melito v. Experian Marketing Solutions Inc. rejecting the argument that Greenough bars incentive awards.
The Supreme Court’s denial in April 2023 of the certiorari petition in Johnson may not be the last word on this issue.
The Supreme Court could decide the question by accepting another petition from a case that presents the issue more squarely. If the Supreme Court does not reverse Johnson, Judge Pryor, in her dissent, urged Congress or the Advisory Committee on Civil Rules to amend Rule 23 to explicitly allow the incentive awards.
